Stop Coddling the Super-Rich

[farnamstreet]

Buffett's op-ed in the NYT Published: August 14, 2011

 

"...Only action that is immediate, real and very substantial will prevent that doubt from morphing into hopelessness. That feeling can create its own reality."

 

http://goo.gl/LCgpX

[Myth465]

Great read. I predict Buffett will be attacked and accused of being a hypocrite by people. I also predict someone will say hey there is a box on the IRS form that allows you to donate as much as you want to the treasury.......

 

This seems to happen every year or so.

[JSArbitrage]

While I consider myself a conservative politically, the Republican Party's defense of certain tax loopholes exposes them for who they are really are: the guardians of the wealthy class.  

 

How any rational, fair person can justify taxing a scientist or plumber at 30% and a private equity principal at 15% is beyond me.

 

How any rational, fair person can justify the same marginal tax rates applying to a household of two working professionals making six figures each and a hedge fund manager who makes $200M is also beyond me.

 

We haven't seen this kind of wealth concentration for almost a century in this country and our tax system needs to reflect that IMO.  Any refusal to accept this fact is childish and destructive.

[alwaysinvert]

http://falkenblog.blogspot.com/2011/08/epstein-on-flat-tax.html

[SouthernYankee]

Thanks to Myth and JSArbitrage for promoting a free and open exchange of ideas!

 

How much revenue will be raised if you institute Buffett's ideas? His OPINION piece is big on percentages, but negligent on whole numbers. Will this influx of tax dollars (assumption) put a large dent into the existing yearly budgetary deficit?

 

I would gladly close loopholes and redefine hedgies carry rule, IF Congress would CUT FIRST! At least cut back to pre-stimulus amounts, that would be a start!!

[Myth465]

I think the right will get what they want for a short while, and then things fall apart, unless they change.

 

http://economistsview.typepad.com/economistsview/2011/08/roubini-is-capitalism-doomed.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+EconomistsView+%28Economist%27s+View+%28EconomistsView%29%29

[Kiltacular]

I am thrilled to see that Buffett is defining "rich" at a level that is a heck of a lot higher than an earned income of $250,000.  On a recent CNBC interview, Quick asked Buffett if those earning $250,000k were "rich".  He said "No".

 

Of course, careful seers have already pointed out that one of the reasons we hear that $250,000 a year in earned income is "rich" is precisely because not very much additional revenue will be raised by implementing Buffett's proposal.  To raise real revenue, rates have to be raised on these not rich "rich".  

 

This leads to polarization, in my opinion.  The "right" then says: "We've seen this movie before and the net effect is that if we give an inch, they'll take a mile."

 

I support Buffett's proposal simply because of the danger a society faces when those earning 10's and hundreds of millions are not paying taxes at rates that resemble everyone else.  A read of history suggests that -- at some point -- everyone else will call for the 'heads' of those who are playing by a separate set of rules.   I think Buffett knows this and I'm sure that someone like Munger knows this from a study of the last 250 years of western history.

 

 

[scorpioncapital]

It's not so simple. The rich don't pay payroll taxes because they created their own social security. If you didn't create that security, why is it not fair to pay a tax that will give you something? Statistics show most people die with zero or negative net worth. Likewise, the rich pay an estate tax, with state taxes some estimates show that some mega-rich in some states would have to pay upward of 80% in taxes on their total wealth, whether upfront or on the backend. Of course, there are foundations, etc.. but that is giving away the money so doesn't count. If the US has a cash-flow issue I do agree to rebalance some taxes to the present but that would require reducing long term wealth taxes.

 

 

[given2invest]

rebuttal

 

http://www.forbes.com/sites/timworstall/2011/08/15/warren-buffetts-very-strange-tax-argument/

[Tim Eriksen]

It is important to read what method Buffett chose to use to calculate tax levels - income (including capital gains) plus payroll taxes paid by the employee and employer.  Many people in the middle class will show a high rate under this method due to low capital gains and the payroll tax inclusion.  If Buffett is going to treat payroll taxes as a tax then he needs to treat social security income as a government handout.  That  is the only logical conclusion.  So Buffett is only giving part of the story.  Those paying 36% versus his 17% will be at significant negative rate after the age of 65 when they get $20,000 to $30,000 annually as a handout from Social Security plus subsidized health care as well.  He needs to look at their whole life not just the working years if payroll tax is included.

 

Second using the employer paid half is questionable.  You could certainly argue Berkshire paid it not the employee. Thus the employees rate would drop by 7.65%.  

 

I would also argue that Buffett pays billions in taxes on the whole.  As the primary of owner of BRK he should view things on a look through basis (like he used to treat earnings on investment holdings).  He could also include the portion of payroll taxes paid for all employees as well.  Even his capital gains as owner of stock is after that corporation has been taxed at 36%.  

 

I have no real problem with the super rich paying a slightly higher rate, but IMO Buffett should look at the issue more objectively.  Second it really isn't a big budget difference.  If the Bush tax cuts for those making over $250,000 costs $800 billion over ten years, then shrinking it to the super rich has to be even smaller than that.  While meaningful it is not going to materially change our current fiscal situation.   By extending the payroll tax reduction he probably completely offsets the additional revenue.  Like it or not taxes either have to go up on the middle class or spedning needs to be reduced.

 

Lastly, he does mention that cuts need to be made in excess of $1.5 trillion over ten years but he wimps out and doesn't sugest anything specific.  His article is more like what a candidate who is pandering for popularity would write than an honest assessment of the situation.  It is disappointing.  

 

 

[ERICOPOLY]

rebuttal

 

http://www.forbes.com/sites/timworstall/2011/08/15/warren-buffetts-very-strange-tax-argument/

 

Berkshire pays a dividend?

 

There is also some obvious math error here:

In the US system from our $100 first we take $35 at the corporate level. Then we take another $15, or the dividend tax rate of 15%, from the recipient. Giving us a tax rate of 50% on dividends. We’ve taken $50 from the total amount that was to be used to pay dividends.

[Rabbitisrich]

Like Kiltacular, my guess is that Buffett's article is less about direct effects on the budget deficit, and more about defusing class hatred. Majorities have historically committed to self-destructive paths when indignant.

 

Focusing solely upon cash generated seems tone deaf and ahistorical.

[Myth465]

Like Kiltacular, my guess is that Buffett's article is less about direct effects on the budget deficit, and more about defusing class hatred. Majorities have historically committed to self-destructive paths when indignant.

 

Focusing solely upon cash generated seems tone deaf and ahistorical.

[rranjan]

rebuttal

 

http://www.forbes.com/sites/timworstall/2011/08/15/warren-buffetts-very-strange-tax-argument/

 

Rebuttal seems weak and wrong. Author is suggesting same stupid argument of sending check to Treasury. One person sending check will not solve this issue. Problem is not that only Buffet has lower tax rates than his Janitor. He has been using himself as an example to describe a weird tax structure and that tax structure is problem here.

 

Another very stupid argument I hear is that rich already pay more than so and so % of total tax. Does it really matter? Someone earning Millions and paying less tax rate than a person earning 100K is not fair. Total amount of tax paid is irrelevent.

 

In general, rich will keep getting richer but last 10-15 years this weird tax structure has made it even more skewed. Payroll taxes are only part of it. Why a hedge fund manager should get 15% tax rate on long term gains when it is essentially an earned income? Same with holding future for few days. Similarly there is no good reason to keep long term capital gain or divident tax rate lower than the tax a regular guy earning 100K has to pay especially when rich derive all their income from capital gain/dividend.

 

Talk about using fuzzy logic with mixing corporation tax rates with individual income tax rates. No matter what the tax rate is for a corporation, divident and capital gain, which is almost full income for very rich guys, are taxed at lower rates.  

 

How much revenue will get added by making a fair tax structure should not be the point of discussion. It might add 10 Billion or 1 Trillion, who cares. Just make it fair for everyone.If everyone was paying similar effective tax rates then increasing tax rate across the board can be made conditional on something but right now it's a pathetic excuse.

 

[value-is-what-you-get]

WEB is on Charlie Rose for an hour tonight.  Probably available tomorrow on Rose's website

 

 

[bargainman]

The thing that's missing from this is a comparison to previous tax regimes.  The rich are taxed less now than they were during Reagan's era.  That's saying something considering how Reagan is always held up as the model Republican.  Recently, the budget director during the Reagan era blasted current Republicans for being 'credit card Republicans',

 

http://www.alternet.org/newsandviews/article/366087/reagan_budget_director_slams_gop_for_'theology'_of_tax_cuts/

 

 

Democracy is some ways is supposed to be an equalizer between the haves and the have nots.  The haves have a ton of money and resources and power, but the have nots have numbers which in some way helps counteract the unmitigated power of the haves.  (Yes I know the US is not a democracy really, but close enough).  However this counter balancing force seems to be failing, I'm not sure why.  Since Reagan's time the taxation scale has gotten relatively less and less progressive.  Every time taxes go down and get less progressive, the same arguments are thrown out over and over again to justify these actions. "Tax cuts raise revenue".  Problem is that the historical data does not show that:

http://www.cbpp.org/cms/?fa=view&id=165

 

http://www.businessinsider.com/history-of-tax-rates

 

There are also issues with government spending, the data shows that government spending is horribly inefficient compared to the amount of economic activity it produces.  So it's time to do something else.  But that's a different although related discussion.

 

Buffett's point I think was more about the widening gap between the rich and the poor, and the role that the anti-progressive tax system has played in that.  Compared to most other times in history tax rates are unsustainably low, and are particularly not progressive.  That's the thing that I think gets lost in the shuffle, people always look at rates compared to today or yesterday, not compared to the last 30 years.

[Liberty]

http://www.businessinsider.com/obama-warren-buffett-is-right-on-taxes-2011-8

[wallynet]

http://www.charlierose.com/view/interview/11845

 

Link to the Charlie Rose interview.

[Kiltacular]

thanks for the link wally -- 'required' watching for those interested in this discussion.

[Liberty]

I'm watching it right now. Warren looks in good shape. Very good so far.

[moore_capital54]

Buffet says his Adjusted Gross Income was roughly $62mm in 2010, what a star! Keep in mind this is all derived from his wealth OUTSIDE of Berkshire Hathaway. A few years ago Buffet said that wealth stood at around $500mm, I bet some of this income is coming from his buys in 2008-2009.

 

 

[Liberty]

Buffet says his Adjusted Gross Income was roughly $62mm in 2010, what a star! Keep in mind this is all derived from his wealth OUTSIDE of Berkshire Hathaway. A few years ago Buffet said that wealth stood at around $500mm, I bet some of this income is coming from his buys in 2008-2009.

 

This is probably the wrong way to look at it, but let's just pretend that he gets 3.1% dividend on average from his privately owned stocks (he probably doesn't need to sell much since he lives way below his means, so it's mostly unrealized, untaxed gains), that means he's got about 2 billion. (2,000 * 0.031 = 62). More if the avg dividend is lower (maybe he has lots of small caps that don't pay dividends, since in his private account he can invest in smaller businesses that are more inefficiently priced, so it could be a bunch more billions).

[Parsad]

I'm really going to miss the old guy the day he's gone.  Another great interview, and after all these years, I'm still in awe of the man's humility.  Cheers!

[moore_capital54]

Liberty, Buffett has stated repeatledly that his net worth outside of Berkshire was around $500mm, he so much as wrote a letter to Paulson during the credit crisis spelling out the same. I believe this gain most probably came from securities he purchased in 2008-2009 that he sold in 2010.

 

That letter proposed a deal in which, in the words of the letter, "The company I head, Berkshire Hathaway, would be pleased to invest $500 million" and "I would be willing to personally buy $100 million of stock in this public offering. (This constitutes about 20% of my net worth outside of my Berkshire holdings, which as you know are promised to charity.)"

[Liberty]

Liberty, Buffett has stated repeatledly that his net worth outside of Berkshire was around $500mm, he so much as wrote a letter to Paulson during the credit crisis spelling out the same. I believe this gain most probably came from securities he purchased in 2008-2009 that he sold in 2010.

 

That letter proposed a deal in which, in the words of the letter, "The company I head, Berkshire Hathaway, would be pleased to invest $500 million" and "I would be willing to personally buy $100 million of stock in this public offering. (This constitutes about 20% of my net worth outside of my Berkshire holdings, which as you know are promised to charity.)"

 

Thanks, I must've missed this, and I guess I took his "hold forever" ideal a bit too seriously for a moment. Of course he must have been selling since 2008-09...